Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today - June 2016. By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how General Growth Properties Inc (GGP) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): General Growth Properties, Inc. (GGP) is a self-administered and self-managed real estate investment trust (REIT). The Company operates through operation, development and management of retail and other rental properties segment. It is engaged in owning and operating retail properties to communities, retailers, employees, consumers and shareholders. The Company owns, either entirely or with joint venture partners, over 130 retail properties located across the United States comprising approximately 130 million square feet of gross leasable area (GLA). The Company’s business is conducted through GGP Operating Partnership, LP (GGPOP), GGP Nimbus, LP (GGPN) and GGP Limited Partnership (GGPLP, and together with GGPN the Operating Partnerships), subsidiaries of GGP. The Company’s properties include Ala Moana Center, Boise Towne Square, Coral Ridge Mall, Crossroads Center, Fashion Show, Lynnhaven Mall, Mondawmin Mall, North Point Mall, Oak View Mall, Park City Center and Owings Mills Mall.
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Downloadable PDF version of this valuation:
ModernGraham Valuation of GGP – June 2016
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
What kind of Intelligent Investor are you?
| Defensive Investor; must pass 6 out of the following 7 tests. | ||||
| 1. Adequate Size of the Enterprise | Market Cap > $2Bil | $25,434,524,023 | Pass | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 1.10 | Fail | |
| 3. Earnings Stability | Positive EPS for 10 years prior | Fail | ||
| 4. Dividend Record | Dividend Payments for 10 years prior | Fail | ||
| 5. Earnings Growth | Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end | -227.56% | Fail | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 27.92 | Fail | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 3.29 | Fail | |
| Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor. | ||||
| 1. Sufficiently Strong Financial Condition | Current Ratio > 1.5 | 1.10 | Fail | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | 130.14 | Fail | |
| 3. Earnings Stability | Positive EPS for 5 years prior | Fail | ||
| 4. Dividend Record | Currently Pays Dividend | Pass | ||
| 5. Earnings Growth | EPSmg greater than 5 years ago | Pass | ||
Stage 2: Determination of Intrinsic Value
| EPSmg | $1.02 |
| MG Growth Estimate | 15.00% |
| MG Value | $39.37 |
| Opinion | Undervalued |
| MG Grade | C |
| MG Value based on 3% Growth | $14.83 |
| MG Value based on 0% Growth | $8.69 |
| Market Implied Growth Rate | 9.71% |
| Current Price | $28.55 |
| % of Intrinsic Value | 72.51% |
General Growth Properties Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $-0.81 in 2012 to an estimated $1.02 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 9.71% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.
General Growth Properties Inc receives an average overall rating in the ModernGraham grading system, scoring a C.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | -$14.90 |
| Graham Number | $17.44 |
| PEmg | 27.92 |
| Current Ratio | 1.10 |
| PB Ratio | 3.29 |
| Current Dividend | $0.71 |
| Dividend Yield | 2.49% |
| Number of Consecutive Years of Dividend Growth | 6 |
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Useful Links:
| ModernGraham tagged articles | Morningstar |
| Google Finance | MSN Money |
| Yahoo Finance | Seeking Alpha |
| GuruFocus | SEC Filings |
Most Recent Balance Sheet Figures
| Balance Sheet Information | 3/1/2016 |
| Total Current Assets | $1,155,496,000 |
| Total Current Liabilities | $1,048,936,000 |
| Long-Term Debt | $13,868,216,000 |
| Total Assets | $23,566,314,000 |
| Intangible Assets | $392,318,000 |
| Total Liabilities | $15,309,437,000 |
| Shares Outstanding (Diluted Average) | 950,154,000 |
Earnings Per Share History
| Next Fiscal Year Estimate | $1.49 |
| Dec2015 | $1.43 |
| Dec2014 | $0.69 |
| Dec2013 | $0.31 |
| Dec2012 | -$0.52 |
| Dec2011 | -$0.37 |
| Dec2010 | $0.00 |
| Dec2009 | -$4.11 |
| Dec2008 | $0.10 |
| Dec2007 | $1.18 |
| Dec2006 | $0.24 |
| Dec2005 | $0.32 |
| Dec2004 | $1.21 |
| Dec2003 | $1.22 |
| Dec2002 | $0.98 |
| Dec2001 | $0.43 |
| Dec2000 | $0.73 |
| Dec1999 | $0.55 |
| Dec1998 | $0.49 |
| Dec1997 | $0.91 |
| Dec1996 | $0.71 |
Earnings Per Share – ModernGraham History
| Next Fiscal Year Estimate | $1.02 |
| Dec2015 | $0.63 |
| Dec2014 | $0.16 |
| Dec2013 | -$0.38 |
| Dec2012 | -$0.81 |
| Dec2011 | -$0.85 |
| Dec2010 | -$0.90 |
| Dec2009 | -$1.05 |
| Dec2008 | $0.52 |
| Dec2007 | $0.76 |
| Dec2006 | $0.64 |
| Dec2005 | $0.83 |
| Dec2004 | $1.03 |
| Dec2003 | $0.89 |
| Dec2002 | $0.69 |
| Dec2001 | $0.57 |
| Dec2000 | $0.66 |
Recommended Reading:
Other ModernGraham posts about the company
Other ModernGraham posts about related companies
Disclaimer:
The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.
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